Greedy banks cash in every time we use cards overseas in £1bn rip-off

Holidaymakers are losing millions of pounds through complex stealth charges on the cost of buying foreign currency and using their cards overseas.

The ripoff warning comes from the official customer body, Consumer Focus, which has used its powers to trigger an Office of Fair Trading inquiry.

It complained that banks are taking advantage of hard-pressed families who are routinely paying too much in a sector where charges add up to £1billion a year.

There is no good reason why the charge for converting £500 to euros can vary from around £10 to more than £30, said Consumer Focus.

It complained that Britons abroad are kept in the dark about the fees applied every time they use a debit or credit card to buy a meal, hire a car or withdraw money.

The finance giants generally take a percentage of the value of any foreign card transaction and then add a second service charge.

As a result, someone taking £200 out of a cash machine with a debit card can be charged about £10. The situation is made worse by the fact that these charges are usually not spelled out clearly on customers’ bank or credit card statements.

Instead, banks take their cut through a mechanism known as exchange rate loading. This involves giving the customer a poor exchange rate when converting the value of any overseas transaction back to sterling.

RELATED ARTICLES

Share this article

Share

Consumer Focus also warned the public against foreign currency firms promising ‘zero commission’.

It said they generally take a fee by rigging the exchange rate.

The watchdog also believes people are being overcharged when using debit cards to buy foreign currency on the high street. The processing cost is around 9p, but customers can be hit with a service charge of up to £4.50.

Consumer Focus chief executive Mike O’Connor said: ‘A cocktail of confusing charges and poor transparency means we are losing out in a big way. We are calling on the OFT to investigate and work with the industry to send these dubious and complex charges packing.

‘Almost half of us travel abroad every year and we face a confusing array of often hidden charges every time we buy currency.

‘Converting £500 into euros can cost from under £10 to over £30 depending on where you switch your money. This is a huge difference for essentially providing the same service, and typically banks offer the worst deals.’

The watchdog has raised a so-called super-complaint with the OFT. This requires the organisation to carry out a formal investigation and decide if action is needed.

Debit card charges alone could add almost £45 to the cost of a two-week family holiday, according to personal finance experts at the Moneynet website.

The British Bankers Association said currency exchange and card charges reflect costs.

It said: ‘Transaction costs abroad are driven by the costs of overseas payment systems, often in countries where free banking does not exist. We are disappointed that Consumer Focus chose not to engage with the industry before it issued this complaint. The banks will now work with the OFT.’